The SNB is widely expected to cut rates by 25 bps at Thursday’s quarterly policy meeting. The Bloomberg survey suggests that all but three forecasters expect a 25 bp cut, with only one predicting that the Bank will opt for a larger 50 bps move. The risk of the larger move from the SNB should not be overlooked, Rabobank’s FX strategist Jane Foley notes.
“This morning the Swiss KOP Economic Institute lowered its growth forecasts for Switzerland to 1.1% and predicted that inflation would be 1.2% in 2024 and just 0.7% in both 2025 and 2026. Swiss August CPI inflation registered a softer than expected 1.1% y/y, down from 1.3% y/y in July.”
“This suggests that inflation is on course to undershoot the 1.5% Q3 inflation forecast that the SNB published in June. It then forecast that inflation would be a 1.4% in 2024, assuming rates stayed at 1.25%. Clearly a strong exchange rate brings downside risks to inflation.”
“As a result, we see the SNB as incentivise to undermine the CHF bulls with a larger than expected rate cut this quarter, particularly since its next policy meeting is not scheduled until December. A 50 bp surprise would likely weaken the CHF, though the reaction may not be sustained.”